Business owners are experts at running their business. But they probably are not trained in payroll and they probably haven’t studied federal and state wage and hour laws. This leaves room for quite a bit of error.
Messing up payroll is serious business. Payroll is a business’ largest expense and getting it wrong could mean facing an even larger expense. I’ll bring five of the most common payroll errors to the attention of these busy people so they don’t wind up in trouble for it later.
1. Estimating the Last Days of the Payroll Cycle
The list of reasons why you don’t want to estimate your employee’s hours a day or two before the close of payroll is a long one. You can read all about them here. You are likely to either overpay or underpay your employees since actual time worked may not reflect that estimate. Plus, doing this makes your records innacurate which, if you ever get investigated by the DOL, will come back to haunt you.
It is both an inaccurate and dangerous practice and one you should avoid. If you are already estimating payroll and want to learn how to reset your payroll cycle, check out the link above.
2. Calculating Overtime Every 2 Weeks Instead of Every Week
This payroll error is so common, it makes me wonder where the idea originated. Overtime is not calculated over a two week period. Non-exempt (hourly) employees earn overtime for all time worked over 40 in a week. The laws here are pretty straight forward. Any ideas that hours can be diluted over a pay period is just wrong.
“Unless exempt, employees covered by the Act must receive overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rates of pay. ” -from DOL
3. Misclassifying Employees
Classifying employees incorrectly is one of the most common payroll errors. Misclassified non-exempt employees and misclassified independent contractors are both subject to wage losses. Neither of those workers are paid overtime and contractors might not even make minimum wage. Get to know the rules of the employment relationship before you define it with your workers.
4. Not Checking Timecards for Mistakes
When employers are in a hurry to process payroll, they might neglect to do one very important thing before running the numbers: check timecards for mistakes. Incorrect timesheets is a very common payroll error and an easy one to avoid. Overpaying employees can, of course, be costly but underpaying employees can be too. According to the DOL, it is the employer’s responsibility to pay employees accurately.
5. Not Paying Employees for All the Time They Work
Some employers don’t realize that travel time and waiting time are compensable. This can turn into a big problem if employees do this frequently. Compensable means that it must be paid. Even though employees may not be doing their normal job during these times, they are “suffered to work” by their employers and must be paid for the time. Employers can pay employees minimum wage during this type of work time.